Converts with Hedges and Warrants and Contingent Payment Debt Instruments
|
|
- Regina Richards
- 8 years ago
- Views:
Transcription
1 Converts with Hedges and Warrants and Contingent Payment Debt Instruments Eileen Marshall Wilson Sonsini Goodrich & Rosati, PC David L. Forst Fenwick & West LLP 1
2 I. Big Picture Issues A. Tax Treatment of Issuance of Conventional Convertible Debt Instrument No allocation of value to imbedded option, so no OID unless actually issued for less than face. See, e.g., Notice , C.B Compare issuance of note/warrant investment unit, with FMV allocation to warrant. Custom Chrome, 76 T.C.M. (CCH) 386, aff d in part and rev d in part, 217 F.3d 1117 (9 th Cir. 2000). Which reflects true cost of borrowing? 2
3 I. Big Picture Issues B. Background of Note/Hedge Integration Popular financing source for issuers, because less dilutive than typical convertible notes, although more expensive. Difference in tax and accounting treatment of hedge. Not integrated for accounting, so interest expense is lower. Recent accounting changes with respect to net share settlement makes transaction less appealing. Previously net share settled debt More or less expensive than straight debt? Hedging inefficiencies may increase cost. If more expensive, why bother? 3
4 I. Big Picture Issues C. Description of Transactions Three components to overall deal: Convertible note (non-cpdi), with conversion price in typical range for converts (up 25-35%); Purchased call option or note hedge, purchased from the lead bank (and sometimes more than one bank), which more or less exactly matches conversion feature of note; and Sold call option or warrant, sold to same bank or banks, with higher strike price and slightly longer term (typically 90 days longer). 4
5 I. Big Picture Issues C. Description of Transactions Transaction $ Issuer Holder Note $100 2 Issuer Counterparty Hedge $75 3 Issuer Counterparty Warrant Transactions 1 and 2 are integrated: Issuer has net cash/value flow of $900 in year one but at maturity pays out $1,000, resulting in $100 of deductible interest. Warrant is not intended to be integrated with convertible note and hedge; if it were, however, the interest deduction would be reduced by the amount of the premium paid for the warrant. 5
6 I. Big Picture Issues D. Description of Notes Unsecured obligations, sometimes senior, sometimes subordinated. Holders have option to convert under limited circumstances: Satisfaction of market price or trading price conditions, Occurrence of certain corporate transactions, or During the month prior to maturity. Upon conversion, holders will receive: cash, stock (full physical settlement), or combination of the two (typically cash equal to the principal and stock for the excess value net share settlement ). 6
7 I. Big Picture Issues E. Description of Hedge(s) Purchased call option(s) with respect to aggregate number of shares of issuer stock deliverable under notes. Issuer has no contractual right to terminate hedge(s). Exercise of hedge(s) is triggered by conversion of notes, American-style option. Hedge(s) will expire worthless if conversion right on notes has not been exercised. 7
8 I. Big Picture Issues F. Description of Warrant Sold call option typically European-style warrant covering shares of issuer stock. Exercise not tied to convertible. No or limited right to net or set off rights/obligations under warrant against obligations/rights under hedge. Premiums due to bank for hedge and to issuer for warrant should be negotiated using arm slength pricing. Hedge costs more than warrant given warrant s higher strike price. Net cost of transaction typically 10%-15% of face. 8
9 I. Big Picture Issues G. Principal Tax Consequences Taxpayer elects to integrate note and hedge (but not warrant) under Treas. Reg , creating synthetic debt instrument ( SDI ) with OID equal to the cost of hedge. OID deductible over term of SDI. Warrant not taxable under
10 I. Big Picture Issues H. Principal Tax Issues Blessed by IRS in generic legal advice AM Accounting rules changed shortly thereafter. [OID Anti-Abuse Rule.] Treas. Reg (d)(1)(iii). Treas. Reg (g). [Integration of All Three.] What if? Risk of failed integration. Separateness of Hedge and Warrant. Is there a valid business purpose? For overall transaction? For purchase of hedge and sale of warrants? For separation of hedge from warrants? Does there need to be? Technical Noncompliance. Mismatched cash flows. Identification requirements. 10
11 II. Drilling Down A. Business Purpose Business purpose for buying hedge and selling warrants is to synthetically increase conversion threshold of notes, at cost equal to net cost of hedge and warrants. Tax benefits are based on gross cost of hedge, not net cost. If warrant strike price is too close to convertible strike price (so net cost is greatly reduced) Transaction may lack economic substance (extreme). May call into question stated business purpose. Value of tax benefits may outweigh net cost of hedge and warrants. May make transaction more vulnerable to an anti-abuse challenge. Must a line be drawn, and if so where? 11
12 II. Drilling Down B. Separateness of Hedges and Warrants The following factors influence whether hedges and warrants will be respected as separate: Difference in maturity; Separate transferability (but is there an economic compulsion to keep hedge and warrants together?); No or limited rights of set-off; No acceleration of warrant expiration in event of early termination of convertible and hedge (for example, cash merger); Settlement mechanics; Premiums separately determined. 12
13 II. Drilling Down C. Pricing of Hedges and Warrants Arm s length pricing for each option: Important because OID accruals on SDIs depend on amount of premium for hedges. How can tax advisors be sure pricing is arm s length and determined separately for each component? What if there are adjustments in warrant intended to affect economics of hedges (e.g., volatility adjustment). Auctions: Why do the prices often vary significantly in competitive bidding situations? Is assumed volatility the only variable? What s the best way to prepare a file that will withstand audit challenge? 13
14 II. Drilling Down D. Qualification for Integration In General Cash flows on the qualifying debt instrument and hedge must permit the calculation of a fixed yield to maturity. Convertible and hedge appear to qualify because hedge offsets conversion features, creating a synthetic fixedcoupon debt with OID. Features that could call integration into question include: Conversion features not fully or perfectly hedged; Potential early termination (increasing yield); Potential minor timing mismatches between issuer receipt and delivery of stock; Potential minor amount mismatches because of net share settlement or cash settlement features. 14
15 II. Drilling Down E. Specific Sources of Concern Early termination. Voluntary holder early conversion; Extraordinary events, including mergers. Physically settled convertible and net share settled hedge. Unhedged make-whole or volatility. adjustment feature of convertible. Staggered settlement of hedge. 15
16 II. Drilling Down F. Potential Sources of Comfort Remote contingencies. Incidental differences in value. Alternative payment schedule rules of Reg (c). If conversion feature not fully hedged, can ignore under Reg (e). But note, if SDIs are convertible, unaccrued OID may be disallowed under section 249 if SDIs are retired prior to maturity, unless issuer can prove premium is not attributable to conversion feature. It s not a problem unless it happens, and if it does, it s a legging out event. 16
17 III. Examples A. Unhedged Make-Whole Adjustment Facts: Notes include matrix adjustment to conversion rate if converted in connection with change of control, intended to make up for lost optionality. Prior to first put date; Purchase price is within certain range and at least 10% cash. Hedges do not have make-whole adjustment. Counterparty not able to hedge make-whole feature in market. Warrants have calculation agent adjustment to preserve value of deal to counterparty in event of change of control of issuer. Adjustment triggered if acquiror s stock is less volatile than issuer s; Amount of payment is not capped. 17
18 III. Examples A. Unhedged Make-Whole Adjustment Integrating make-whole adjustment: Convertible synthetic debt instruments? Only if make-whole is triggered? Ignored under (e). 249 may result in disallowance of unaccrued OID if retired prior to maturity, unless issuer can prove premium is not attributable to conversion feature. Can hedge have volatility adjustment? Unknown cash flow from counterparty to issuer, so alternative payment schedule rules not available. Can t be ignored under (e) because not option to convert into issuer stock or equivalent value. What if capped at cash outflow under make-whole adjustment? Makes hedge more complete; If less than make-whole, excess cash outflow still ignored under (e); Cap results in economic issue for issuer. Can counterparty be made to pay over to issuer profits under its hedging activity as result of make-whole adjustment? Must payment be capped? 18
19 III. Examples B. Convertible with Longer Term than Hedge Some deals involve a convertible with a longer term (typically 20 years), with put and call rights after say 7 years. Hedge is for the term up to the put/call date. To integrate, SDI must have a fixed term of 7 years, for otherwise yield isn t fixed. Most deals use a put right at a premium, or a drop in stated interest rate on the QDI, so the put is presumed exercised under Reg (c)(5). Does this work? Does the yield presumption work for convertibles? Why bother with a long-term convertible in a hedge situation? If conversion feature is in-the-money the hedge forces the issuer to call the notes, and if the conversion feature is out-of-the-money, the holders will put. 19
20 IV. Identification Statement Issues A. Timing To meet identification requirements, taxpayer must enter and retain as part of its books and records (1) date QDI was issued or acquired (or is expected to be issued or acquired) and date hedge was entered into by taxpayer, (2) description of QDI and hedge, and (3) summary of cash flows and accruals on SDI (e). Identification requirements must be satisfied on or before date hedge is entered into (c)(1)(i). Is the hedge entered into when signed, priced (if different) or closed? Closing makes the most sense, but absent specific guidance, only the earliest date is safe. 20
21 IV. Identification Statement Issues B. Divisibility If one holder converts early, that triggers an acceleration of the hedge and an early retirement of a portion of the SDI. Could this be considered a legging out? Reg (d)(2) talks in terms of terminating all or a part of the QDI or hedge. If so, it arguably kills the integration for the entire issue, because you can t leg back in within 30 days. Many tax advisors address this issue by drafting the ID statements to integrate each $1,000 unit of the convertible with a pro rata slice of the hedge, thereby creating as many SDIs as there are units of convertible. Is this technique sufficient to solve the problem, if there is one? Necessary? 21
22 IV. Identification Statement Issues C. Hedging the Shoe If initial purchasers are granted option to purchase additional notes, sometimes greenshoe notes are hedged on different terms than base notes, or may close on a different date. If each QDI is integrated with separate hedge or slice of hedge to form multiple SDIs, it should be possible to hedge greenshoe notes on different terms from firm notes, or not at all. However, greenshoe notes and firm notes are designed to be entirely fungible with each other. If terms of hedge are different, resulting SDIs will be different. Even if identification requirements of particular QDI with particular hedge can be satisfied at issuance, will issuer know which SDIs a transaction in QDIs affects (e.g., early conversion)? Pro rata? If government were to aggregate notes and treat as single QDI that is integrated with one bond hedge (rather than the slices approach), having some of the notes not covered by the hedge would be problematic. Under (c)(2)(ii), however, the QDIs should not be aggregated. 22
23 V. Contingent Payment Debt Instruments A. The Basics CPDI rules under Treas. Reg apply to debt instruments with one or more contingent payments, unless: the contingent payments are remote or incidental; the alternative payment schedule rules of Treas. Reg (c) apply; the notes are VRDIs; or the OID anti-abuse rule of Treas. Reg (g) applies. Beware debt/equity issues that might make the purported CPDIs equity for tax purposes. 23
24 V. Contingent Payment Debt Instruments A. The Basics If the CPDI rules apply, and note is issued for cash or publicly traded property, non-contingent bond method is used to determine yield. Generally, interest accrues on the note using the comparable yield at which issuer would issue fixed rate, non-contingent, non-convertible note with terms and conditions otherwise similar to CPDI (i.e., higher straight debt yield). Intended to approximate actual cost of borrowing. 24
25 V. Contingent Payment Debt Instruments B. Terms of CIDECS $1,000 face amount, issued at par. Stated term of 30 years. General unsecured, subordinated notes - junior in right of payment to all other debt, pari passu with trade creditors, senior to equity. Convertible at 15-25% (or less?) conversion premium at holder s option into cash and/or stock (at issuer s option) under limited circumstances: If trading price of common stock is 130% of conversion price for 20 of 30 consecutive trading days; If trading price of notes is less than 98% of trading price of common stock times conversion rate for 10 consecutive trading days; If issuer calls notes for redemption; Upon occurrence of certain fundamental corporate transactions; or During month preceding maturity. Contingent interest after year seven: 0.50% during any semi-annual period if average trading price of notes (not common stock) is at least 150% of face ( Upside Trigger ); 0.25% during any semi-annual period if average trading price is less than 50% (increasing over time to 95%) of face ( Downside Trigger ); and Amount of extraordinary cash dividend. Deferral of interest payments for 5 years if not in default (but not beyond maturity or redemption). After year ten, issuer may call for redemption if common stock trading price exceeds 150% of conversion price for 20 of 30 consecutive trading days. Holder put in event of certain fundamental corporate transactions. No other puts. 25
26 V. Contingent Payment Debt Instruments C. Remote and Incidental Test Conversion right alone cannot cause CPDI rules to apply. Treas. Reg (a)(4). See slide 2. CPDI rules will not apply if likelihood of contingent payments is remote or amount is incidental based on payment expectations as of issue date. Notice acknowledges that remote and incidental test is pretty low bar. 26
27 V. Contingent Payment Debt Instruments C. Remote and Incidental Test What is remote? Probability of occurrence of less than 5%? Less than that? Evidence provided by investment bank based on probability of Upside Trigger being reached. What s the point of Downside Trigger? 27
28 V. Contingent Payment Debt Instruments C. Remote and Incidental Test Payment treated as incidental if under all reasonably expected market conditions, the potential amount of the payment is insignificant relative to the total expected amount of the remaining payments on the debt instrument. Treas. Reg (h)(3). What is incidental? 1% or 2% of something? Evidence provided by investment bank based on a compound annual stock growth rate assumption (usually that predicted by comparable yield analysis) Test. With/without contingent interest. Yield with exceeds yield without by greater of 25 basis points or 5% of yield. Present Value Test. NPV of contingent interest as percentage of NPV of all payments (including conversion value). Gross Payment Test. Amount of contingent interest as percentage of all payments (excluding conversion value). 28
29 V. Contingent Payment Debt Instruments D. Comparable Yield Comparable yield is yield at which issuer would issue fixed rate, non-contingent, non-convertible (See Rev. Rul ) note with terms and conditions otherwise similar to CPDI (i.e., higher straight debt yield). Relevant terms and conditions include level of subordination, term (what about puts/calls?), timing of payments and general market conditions. No adjustments made for riskiness of contingencies or liquidity of debt instrument. CY must be reasonable and not less than AFR, although presumed to be AFR if marketed or sold in substantial part to tax insensitive investors. Treas. Reg (b)(4)(i). 29
30 V. Contingent Payment Debt Instruments D. Comparable Yield AFR presumption can be overcome only with clear and convincing evidence that CY should be specific yield in excess of AFR. Evidence specific to issuer, may not rely on evidence pertaining to comparable issuers or general market conditions. Treas. Reg (b)(4)(i)(B). But issuer usually has no straight debt outstanding, maybe no convertible debt either. Evidence provided by investment bank: Option pricing model for convertible debt of issuer; Comparable issuers of unsecured debt; Integration hypothetical under Treas. Reg ; Other CIDECS; and Trust preferreds and convertible preferred by issuers with comparable debt ratings. What if comparable yield is AHYDO? 30
31 V. Contingent Payment Debt Instruments E. Section 163(l) Sec. 163(l) disallows an interest deduction on corporate debt payable in equity of the issuer or a related person Indebtedness is payable in equity only if a substantial amount of the principal or interest is required to be paid or converted (or payable in or convertible into) such equity or determined by reference to the value of such equity The conference report states that it is not expected that 163(l) will affect debt with a conversion feature if the conversion price is significantly higher than the market price of the stock on the issue date of the debt The Service has stated that a projected payment schedule under the noncontingent bond method is not determinative in applying 163(l). Rev. Rul
32 V. Contingent Payment Debt Instruments F. Section 249 Under 249 no deduction is allowed to the issuing corporation for a premium paid or incurred upon the repurchase of a convertible debt to the extent the repurchase price exceeds the adjusted issue price plus a normal call premium on nonconvertible bonds. However, 249 does not apply to the extent the corporation can demonstrate that such excess is attributable to the cost of borrowing and is not attributable to the conversion feature. Section 249 should not affect an issuer s ability to deduct accruals of interest based on a comparable yield. Rev. Rul
33 IRS Circular 230 Disclosure To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 33
Convertible Notes Overview. Preparing for a Smooth IPO Process a Guide for In-House Counsel
Convertible Notes Overview Preparing for a Smooth IPO Process a Guide for In-House Counsel Convertible Notes Offerings An Overview for Issuers Convertible note offerings can be an effective financing tool
More informationModule A Advanced Bond Yield Computation Overview
Module A Advanced Bond Yield Computation Overview Introduction Computation of the correct bond yield is vital in determining compliance with yield restriction rules, arbitrage rebate rules and certain
More informationA Guide for the Individual Investor TAXES & INVESTING
A Guide for the Individual Investor TAXES & INVESTING The Options Industry Council (OIC) is an industry cooperative created to educate the investing public and brokers about the benefits and risks of exchange-traded
More informationFinal Actively Traded Debt Regulations: Implications for Debt Modifications and Exchanges
Final Actively Traded Debt Regulations: Implications for Debt Modifications and Exchanges By William R. Pomierski and Jeffrey K. Ekeberg Overview If an outstanding debt instrument is modified, or is exchanged
More informationIndian Accounting Standard (Ind AS) 32 Financial Instruments: Presentation
Indian Accounting Standard (Ind AS) 32 Financial Instruments: Presentation Contents Paragraphs Objective 2 3 Scope 4 10 Definitions 11 14 Presentation 15 50 Liabilities and equity 15 27 Puttable instruments
More informationInternational Accounting Standard 32 Financial Instruments: Presentation
EC staff consolidated version as of 21 June 2012, EN EU IAS 32 FOR INFORMATION PURPOSES ONLY International Accounting Standard 32 Financial Instruments: Presentation Objective 1 [Deleted] 2 The objective
More informationASPE AT A GLANCE Section 3856 Financial Instruments
ASPE AT A GLANCE Section 3856 Financial Instruments December 2014 Section 3856 Financial Instruments Effective Date Fiscal years beginning on or after January 1, 2011 1 SCOPE Applies to all financial instruments
More informationAssurance and accounting A Guide to Financial Instruments for Private
june 2011 www.bdo.ca Assurance and accounting A Guide to Financial Instruments for Private Enterprises and Private Sector t-for-profit Organizations For many entities adopting the Accounting Standards
More informationTAXES & INVESTING. Table Of Contents. A Guide for the Individual Investor. Long Stock and Long Calls Short Calls Long Puts Short Puts
A Guide for the Individual Investor TAXES & INVESTING Table Of Contents Introduction 3 Dividends 3 Capital Gains and Losses 6 Short Sales and Constructive Sales 7 Wash-Sale Rule 12 One-Sided Equity Option
More informationGOVERNMENT OF MALAYSIA
GOVERNMENT OF MALAYSIA Malaysian Public Sector Accounting Standards MPSAS 28 Financial Instruments: Presentation May 2014 MPSAS 28 - Financial Instruments: Presentation Acknowledgment The Malaysian Public
More informationREIT; DIVIDENDS PAID DEDUCTION; REINVESTMENT PLAN
Rev. Rul. 2002- [Ruling that discount is not a dividend] ISSUE REIT; DIVIDENDS PAID DEDUCTION; REINVESTMENT PLAN What are the Federal income tax consequences arising from the issuance of shares of a publiclytraded
More informationFINANCIAL PRODUCTS USED IN THE TAX-EXEMPT BOND INDUSTRY by Sunita B. Lough
FINANCIAL PRODUCTS USED IN THE TAX-EXEMPT BOND INDUSTRY by Sunita B. Lough Objective The objective of this Article is to discuss various types of financial products used in the tax-exempt bond industry.
More informationInternal Revenue Service
Internal Revenue Service Number: 200750009 Release Date: 12/14/2007 Index Numbers: 368.04-00, 355.01-00 ---------------------- -------------------------------------------------- --------------------------------------
More informationTax Strategies For Selling Your Company By David Boatwright and Agnes Gesiko Latham & Watkins LLP
Tax Strategies For Selling Your Company By David Boatwright and Agnes Gesiko Latham & Watkins LLP The tax consequences of an asset sale by an entity can be very different than the consequences of a sale
More informationTax rules for bond investors
Tax rules for bond investors Understand the treatment of different bonds Paying taxes is an inevitable part of investing for most bondholders, and understanding the tax rules, and procedures can be difficult
More informationTaxation of CVRs in Public M&A Transactions
Boston Tax Forum Roger M. Ritt May 2, 2011 Taxation of CVRs in Public M&A Transactions I. General Background A. The issuance of CVRs (contingent value/payment rights) to holders of publiclytraded Target
More informationTax Talk For Tough Times: A Primer On Cancellation Of Debt And Related Partnership Matters
Tax Talk For Tough Times: A Primer On Cancellation Of Debt And Related Partnership Matters Walter R. Rogers, Jr. Tough times often result in canceled debt and unexpected income. Walter R. Rogers, Jr.,
More informationCOMMUNICATING THE IMPACT OF THE NEXT PHASE OF COST BASIS LEGISLATION STARTING IN 2014
COMMUNICATING THE IMPACT OF THE NEXT PHASE OF COST BASIS LEGISLATION STARTING IN 2014 Financial Advisors and Tax Professionals are encouraged to collaborate, educate, and help clients plan for the next
More informationHalf - Year Financial Report January June 2015
Deutsche Bank Capital Finance Trust I (a statutory trust formed under the Delaware Statutory Trust Act with its principle place of business in New York/New York/U.S.A.) Half - Year Financial Report January
More informationACCOUNTING STANDARDS BOARD OCTOBER 1998 FRS 14 FINANCIAL REPORTING STANDARD EARNINGS ACCOUNTING STANDARDS BOARD
ACCOUNTING STANDARDS BOARD OCTOBER 1998 FRS 14 14 EARNINGS FINANCIAL REPORTING STANDARD PER SHARE ACCOUNTING STANDARDS BOARD Financial Reporting Standard 14 Earnings per Share is issued by the Accounting
More informationSTATUTORY BOARD SB-FRS 32 FINANCIAL REPORTING STANDARD. Financial Instruments: Presentation Illustrative Examples
STATUTORY BOARD SB-FRS 32 FINANCIAL REPORTING STANDARD Financial Instruments: Presentation Illustrative Examples CONTENTS Paragraphs ACCOUNTING FOR CONTRACTS ON EQUITY INSTRUMENTS OF AN ENTITY Example
More informationSTATUTORY BOARD FINANCIAL REPORTING STANDARD SB-FRS 32. Financial Instruments: Presentation Illustrative Examples
STATUTORY BOARD FINANCIAL REPORTING STANDARD SB-FRS 32 Financial Instruments: Presentation Illustrative Examples CONTENTS Paragraphs ACCOUNTING FOR CONTRACTS ON EQUITY INSTRUMENTS OF AN ENTITY Example
More informationPresenting a live 90-minute webinar with interactive Q&A. Today s faculty features:
Presenting a live 90-minute webinar with interactive Q&A Drafting and Negotiating Convertible Preferred Stock Provisions: Protecting Interests of Businesses and Investors Structuring Liquidation and Distribution
More informationTax Issues In Acquiring Debt
Tax Issues In Acquiring Debt Charles R. Beaudrot Partner, Tax and Real Estate Capital Markets Practices 404.504.7753 cbeaudrot@mmmlaw.com Timothy S. Pollock Partner, Tax, Real Estate and Real Estate Capital
More informationOTC Options as Qualified Covered Call Options
May 19, 2004 OTC Options as Qualified Covered Call Options This paper is submitted by the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is the global trade association representing
More informationCapital Assistance Program. Mandatorily Convertible Preferred Stock and Warrants
Capital Assistance Program Mandatorily Convertible Preferred Stock and Warrants Summary of Mandatorily Convertible Preferred Stock ( Convertible Preferred ) Terms Issuer: Application Process: Qualifying
More informationTaxation of Debt Instruments: OID and AHYDO Rules, Distressed Debt, Contingent Capital
Presenting a live 90-minute teleconference with interactive Q&A Taxation of Debt Instruments: OID and AHYDO Rules, Distressed Debt, Contingent Capital Navigating Latest IRS Rules and Overcoming Complexities
More informationILLUSTRATION 17-1 CONVERTIBLE SECURITIES CONVERTIBLE BONDS
ILLUSTRATION 17-1 CONVERTIBLE SECURITIES CONVERTIBLE BONDS Issued ten, 8%, $1,000 par value bonds at 110. Each bond is convertible into 100 shares of $5 par value common. Entry at date of issue: Cash 11,000
More informationCHAPTER 16. Dilutive Securities and Earnings Per Share ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Concepts for Analysis
CHAPTER 16 Dilutive Securities and Earnings Per Share ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis 1. Convertible debt and preferred
More informationConcentrated Stock Overlay INCREMENTAL INCOME FROM CONCENTRATED WEALTH
Concentrated Stock Overlay INCREMENTAL INCOME FROM CONCENTRATED WEALTH INTRODUCING RAMPART CONCENTRATED STOCK OVERLAY STRATEGY When a portfolio includes a concentrated equity position, the risk created
More informationWhat Management Should Know Before Issuing Equity-Linked Instruments in Financing Transactions
What Management Should Know Before Issuing Equity-Linked Instruments in Financing Transactions October 2012 Table of Contents Navigating through the Guidance 2 ASC 480, Distinguishing Liabilities from
More informationTHE TAXATION OF EXOTIC INVESTMENT PRODUCTS. Paul S. Lee, J.D., LL.M. National Managing Director Bernstein Global Wealth Management.
THE TAXATION OF EXOTIC INVESTMENT PRODUCTS Paul S. Lee, J.D., LL.M. National Managing Director Bernstein Global Wealth Management August 2013 TABLE OF CONTENTS I. EXOTIC INVESTMENTS 1 A. Generally 1 B.
More informationIRPAC Followup Comments as of June 23, 2009 Notice 2009-17 - IRS Request for Comments on Reporting Customer s Basis in Securities Transactions
13 Issue From IRS How to ensure consistency between customers making specific identification of securities sold or transferred and broker reporting Reconciliation with Customer Reporting Response Investors
More informationTerminology of Convertable Bonds
Bellerive 241 P.o. Box CH-8034 Zurich info@fam.ch www.fam.ch T +41 44 284 24 24 Terminology of Convertable Bonds Fisch Asset Management Terminology of Convertible Bonds Seite 2 28 ACCRUED INTEREST 7 ADJUSTABLE-RATE
More informationEquity Opportunity Trust Value Select Ten Series 2008A (A Unit Investment Trust)
Equity Opportunity Trust Value Select Ten Series 2008A (A Unit Investment Trust) Designed for Total Return From: Current Dividend Income Capital Appreciation Portfolio of 10 Highest Dividend Yielding Dow
More informationReverse Convertible Notes Linked to the Common Stock of Best Buy Co., Inc.
REVERSE CONVERTIBLE NOTES I RBC STRUCTURED NOTES Reverse Convertible Notes Linked to the Common Stock of KEY TERMS POTENTIAL RETURNS IF THE REFERENCE STOCK FALLS BELOW THE BARRIER PRICE BEFORE THE MATURITY
More informationEQUITY DERIVATIVES BRUCE N. HAWTHORNE JOHN L. GRAHAM ELIZABETH M. SCHUBERT KING & SPALDING SEPTEMBER 2001
EQUITY DERIVATIVES BRUCE N. HAWTHORNE JOHN L. GRAHAM ELIZABETH M. SCHUBERT KING & SPALDING SEPTEMBER 2001 Copyright 2001 I. Background A derivative security is a financial contract entered into with respect
More informationFRS 14 FINANCIAL REPORTING STANDARDS CONTENTS. Paragraph
ACCOUNTING STANDARDS BOARD OCTOBER 1998 CONTENTS SUMMARY Paragraph Objective 1 Definitions 2 Scope 3-8 Measurement: Basic earnings per share 9-26 Earnings basic 10-13 Number of shares basic 14-26 Bonus
More informationJune 2008 Supplement to Characteristics and Risks of Standardized Options
June 2008 Supplement to Characteristics and Risks of Standardized Options This supplement supersedes and replaces the April 2008 Supplement to the booklet entitled Characteristics and Risks of Standardized
More informationSection I. Introduction
Section I. Introduction Purpose and Overview In its publication entitled Best Practice Debt Management Policy, the Government Finance Officers Association (GFOA) states that Debt management policies are
More informationInd AS 32 and Ind AS 109 - Financial Instruments Classification, recognition and measurement. June 2015
Ind AS 32 and Ind AS 109 - Financial Instruments Classification, recognition and measurement June 2015 Contents Executive summary Standards dealing with financial instruments under Ind AS Financial instruments
More informationHow To Account In Indian Accounting Standards
Indian Accounting Standard (Ind AS) 39 Financial Instruments: Recognition and Measurement Contents Paragraphs Objective 1 Scope 2 7 Definitions 8 9 Embedded derivatives 10 13 Recognition and derecognition
More informationTHE EQUITY OPTIONS STRATEGY GUIDE
THE EQUITY OPTIONS STRATEGY GUIDE APRIL 2003 Table of Contents Introduction 2 Option Terms and Concepts 4 What is an Option? 4 Long 4 Short 4 Open 4 Close 5 Leverage and Risk 5 In-the-money, At-the-money,
More informationCOMMUNICATING THE IMPACT OF COST BASIS LEGISLATION
COMMUNICATING THE IMPACT OF COST BASIS LEGISLATION Financial Advisors and Tax Professionals are encouraged to collaborate, educate, and help clients plan for the upcoming tax year. BONDS The IRS has divided
More informationNOTICE TO INVESTORS: THE NOTES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT INSTRUMENTS.
PRICING SUPPLEMENT Filed Pursuant to Rule 424(b)(2) Registration Statement No. 333-171806 Dated May 22, 2013 Royal Bank of Canada Airbag Autocallable Yield Optimization Notes $6,732,000 Notes Linked to
More informationHigh-yield bonds: an introduction to material covenants and terms
Key points The European high-yield bond market has seen significant issuances over the past two years (both in terms of number of issuances and volumes) and has seen numerous debut issuers. A driver of
More informationInterest Rate Hedging Considerations for Corporate Taxpayers
Interest Rate Hedging Considerations for Corporate Taxpayers Volume 6 Issue 3 2007 By William R. Pomierski William Pomierski describes the requirements for, as well as the expected tax consequences resulting
More informationARCH CAPITAL ADVISORS
ARCH CAPITAL ADVISORS TERM SHEET Mezzanine Debt This term sheet does not constitute an offer and is solely for discussion purposes. This term sheet shall not be construed as creating any obligations on
More informationJanuary 2011 Supplement to Characteristics and Risks of Standardized Options The February 1994 version of the booklet entitled Characteristics and Risks of Standardized Options (the Booklet ) is amended
More informationJPMORGAN CHASE & CO FORM FWP. (Free Writing Prospectus - Filing under Securities Act Rules 163/433) Filed 07/16/14
JPMORGAN CHASE & CO FORM FWP (Free Writing Prospectus - Filing under Securities Act Rules 163/433) Filed 07/16/14 Address 270 PARK AVE 38TH FL NEW YORK, NY 10017 Telephone 2122706000 CIK 0000019617 Symbol
More informationSect. 108 and Cancellation of Debt Income: Navigating IRS Rules
Sect. 108 and Cancellation of Debt Income: Navigating IRS Rules Wayne R. Strasbaugh Ballard Spahr LLP 1735 Market Street, 51st Floor Philadelphia, Pennsylvania 19103 strasbaugh@ballardspahr.com October
More informationTREATMENT OF PREPAID DERIVATIVE CONTRACTS. Background
Traditional forward contracts TREATMENT OF PREPAID DERIVATIVE CONTRACTS Background A forward contract is an agreement to deliver a specified quantity of a defined item or class of property, such as corn,
More informationNature of operations and basis of preparation (Note 1) Commitments and contingencies (Note 10) Subsequent events (Note 12)
Unaudited Interim Consolidated Financial Statements For the nine months ended September 30, 2005 Contents Interim Consolidated Financial Statements Interim Consolidated Balance Sheets Interim Consolidated
More informationFinancing Incentives March 5, 2009
Change picture on Slide Master Financing Incentives March 5, 2009 PRESENTED BY Robert A. Friedman Troutman Sanders LLP The Chrysler Building 405 Lexington Ave New York, NY 10174 (212) 704-6000 www.troutmansanders.com
More informationChapter 7: Capital Structure: An Overview of the Financing Decision
Chapter 7: Capital Structure: An Overview of the Financing Decision 1. Income bonds are similar to preferred stock in several ways. Payment of interest on income bonds depends on the availability of sufficient
More informationThe Options Clearing Corporation
PROSPECTUS M The Options Clearing Corporation PUT AND CALL OPTIONS This prospectus pertains to put and call security options ( Options ) issued by The Options Clearing Corporation ( OCC ). Certain types
More informationInternational Accounting Standard 39 Financial Instruments: Recognition and Measurement
EC staff consolidated version as of 18 February 2011 FOR INFORMATION PURPOSES ONLY International Accounting Standard 39 Financial Instruments: Recognition and Measurement Objective 1 The objective of this
More informationTAXATION OF REAL ESTATE INVESTMENT TRUSTS. January 2012 J. Walker Johnson and Alexis MacIvor
TAXATION OF REAL ESTATE INVESTMENT TRUSTS January 2012 J. Walker Johnson and Alexis MacIvor I. Taxation of Real Estate Investment Trusts A. Qualification as a REIT 1. Eligible entities Section 856(a) lists
More informationInstructions for Schedule K (Form 990)
2011 Instructions for Schedule K (Form 990) Supplemental Information on Tax-Exempt Bonds Department of the Treasury Internal Revenue Service Section references are to the Internal Revenue Code unless otherwise
More informationSTATE BOARD OF REGENTS OF THE STATE OF UTAH STUDENT LOAN PURCHASE PROGRAM An Enterprise Fund of the State of Utah
An Enterprise Fund of the State of Utah Financial Statements AN ENTERPRISE FUND OF THE STATE OF UTAH FOR THE NINE MONTHS ENDED MARCH 31, 2011 TABLE OF CONTENTS Page MANAGEMENT S REPORT 1 FINANCIAL STATEMENTS:
More informationTerm Sheet for Alliance of Angels Bridge Financing
Term Sheet for Alliance of Angels Bridge Financing This Term Sheet is for use by Alliance of Angels members in negotiating bridge financing deals. Each party should seek appropriate legal counsel before
More informationOctober 2013. Convertible Bonds. An Issuer s Guide (European Edition)
October 2013 Convertible Bonds An Issuer s Guide (European Edition) This document is confidential and accordingly its contents are not to be disseminated or copied to anyone without our consent. It is
More informationApex Clearing Corporation
Statement of Financial Condition (Unaudited) Apex Clearing Corporation is a member of FINRA, Securities Investor Protection Corporation (SIPC), NYSE MKT LLC, NYSE Arca, Inc., BATS Y Exchange, Inc., BATS
More informationTax Aspects of Buy-Sells
Tax Aspects of Buy-Sells By Charles A. Wry, Jr. mbbp.com Business Technology & IP Employment & Immigration Taxation 781-622-5930 Reservoir Place 1601 Trapelo Road, Suite 205 Waltham, MA 02451 781-622-5930
More informationHow To Sell A Callable Bond
1.1 Callable bonds A callable bond is a fixed rate bond where the issuer has the right but not the obligation to repay the face value of the security at a pre-agreed value prior to the final original maturity
More information{What s it worth?} in privately owned companies. Valuation of equity compensation. Restricted Stock, Stock Options, Phantom Shares, and
plantemoran.com {What s it worth?} Valuation of equity compensation in privately owned companies Restricted Stock, Stock Options, Phantom Shares, and Other Forms of Equity Compensation The valuation of
More informationNEW YORK STATE DIVISION OF THE BUDGET DEBT MANAGEMENT POLICIES STATE-SUPPORTED DEBT
NEW YORK STATE DIVISION OF THE BUDGET DEBT MANAGEMENT POLICIES STATE-SUPPORTED DEBT LAST REVISED: October 2012 Introduction: The following provides a summary of the State s Debt Management Policies and
More information2003 ISDA. Credit Derivatives. Definitions ISDA INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC.
2003 ISDA Credit Derivatives Definitions ISDA INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC. Copyright 2003 by INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC. 360 Madison Avenue, 16 th Floor
More informationGolden parachute payments
Golden parachute payments Understanding how stock options and restricted stock can cost both corporations and executives during a merger or acquisition Jeffrey A. Martin Golden parachute payments 2 Corporations
More informationChapter 16. Debentures: An Introduction. Non-current Liabilities. Horngren, Best, Fraser, Willett: Accounting 6e 2010 Pearson Australia.
PowerPoint to accompany Non-current Liabilities Chapter 16 Learning Objectives 1. Account for debentures payable transactions 2. Measure interest expense by the straight line interest method 3. Account
More informationOpportunities and Pitfalls Under Sections 351 and 721
College of William & Mary Law School William & Mary Law School Scholarship Repository William & Mary Annual Tax Conference Conferences, Events, and Lectures 2007 Opportunities and Pitfalls Under Sections
More informationEquity Incentive Compensation Plan Considerations for a Limited Liability Company 1
Equity Incentive Compensation Plan Considerations for a Limited Liability Company 1 By James R. Browne Strasburger & Price LLP Dallas, Texas August 1, 2012 A privately held company organized as a limited
More informationIntroduction to M&A Tax: Due Diligence Traps in S Corp Acquisitions (Slides)
College of William & Mary Law School William & Mary Law School Scholarship Repository William & Mary Annual Tax Conference Conferences, Events, and Lectures 2012 Introduction to M&A Tax: Due Diligence
More informationSPDR Wells Fargo Preferred Stock ETF
SPDR Wells Fargo Preferred Stock ETF Summary Prospectus-October 31, 2015 PSK (NYSE Ticker) Before you invest in the SPDR Wells Fargo Preferred Stock ETF (the Fund ), you may want to review the Fund's prospectus
More informationANATOMY OF AN ESOP. Employee Stock Ownership Plans From the Perspective of the Business Owner
ANATOMY OF AN ESOP Employee Stock Ownership Plans From the Perspective of the Business Owner MARK D. WELKER mark.welker@huschblackwell.com 816-983-8148 KCP-1712449-3 Copyright Mark D. Welker 1/23/09 TABLE
More informationValue of Equity and Per Share Value when there are options and warrants outstanding. Aswath Damodaran
Value of Equity and Per Share Value when there are options and warrants outstanding Aswath Damodaran 1 Equity Value and Per Share Value: A Test Assume that you have done an equity valuation of Microsoft.
More informationExam 1 Morning Session
91. A high yield bond fund states that through active management, the fund s return has outperformed an index of Treasury securities by 4% on average over the past five years. As a performance benchmark
More informationIFRS IN PRACTICE. Accounting for convertible notes
IFRS IN PRACTICE Accounting for convertible notes 2 IFRS IN PRACTICE - ACCOUNTING FOR CONVERTIBLE NOTES TABLE OF CONTENTS Introduction 3 The basic requirements of IFRSs 4 Example 1 Convertible note in
More informationWhat does it mean for real property to be secured by or encumbered by debt?
What does it mean for real property to be secured by or encumbered by debt? Todd Golub Beverly Katz David A. Miller Baker & McKenzie LLP Internal Revenue Service Ernst & Young LLP Chicago, Illinois Washington,
More informationM&A Insights Purchasing and modifying discount debt What dealmakers should know
M&A Insights March 2013 Merger & Acquisition Services M&A Insights Purchasing and modifying discount debt What dealmakers should know Introduction In the current economy, a significant amount of outstanding
More informationIFrS. Disclosure checklist. July 2011. kpmg.com/ifrs
IFrS Disclosure checklist July 2011 kpmg.com/ifrs Contents What s new? 1 1. General presentation 2 1.1 Presentation of financial statements 2 1.2 Changes in equity 12 1.3 Statement of cash flows 13 1.4
More informationGreg Flower Wealth Management. Discretionary Wealth Management
Greg Flower Wealth Management Discretionary Wealth Management Disclaimer The information included in this document, including any opinion, is based on various sources believed to be reliable, but its accuracy
More informationLLC Equity Incentive Compensation Alexander G. Domenicucci
LLC Equity Incentive Compensation Alexander G. Domenicucci Agenda Advantages of LLCs Taxation of LLCs Types of LLC equity incentive compensation Capital interests Profits interests Tax consequences of
More informationSplit Dollar Insurance And Premium Financing Planning (Part 2)
Split Dollar Insurance And Premium Financing Planning (Part 2) Donald O. Jansen C. Loans To Finance Premiums 1. Concept a. Why Use Loans To Finance Premiums? i. Reduces Gifts To Trust. If the premium exceeds
More information2000 Morse, Barnes-Brown & Pendleton P.C. and Jeffrey P. Steele TERM SHEET FOR SERIES A ROUND OF FINANCING OF XCORP. XYZ Capital
2000 Morse, Barnes-Brown & Pendleton P.C. and Jeffrey P. Steele TERM SHEET FOR SERIES A ROUND OF FINANCING OF XCORP Amount of Investment: $3,000,000 Investors: Type of Security: ABC Ventures XYZ Capital
More informationFinancial Instruments: Recognition and Measurement
STATUTORY BOARD FINANCIAL REPORTING STANDARD SB-FRS 39 Financial Instruments: Recognition and Measurement This version of the Statutory Board Financial Reporting Standard does not include amendments that
More informationPOLICY STATEMENT Q-22
POLICY STATEMENT Q-22 DISCLOSURE DOCUMENT FOR COMMODITY FUTURES CONTRACTS, FOR OPTIONS TRADED ON A RECOGNIZED MARKET AND FOR EXCHANGE-TRADED COMMODITY FUTURES OPTIONS 1. In the case of commodity futures
More informationCatalyst/Princeton Floating Rate Income Fund Class A: CFRAX Class C: CFRCX Class I: CFRIX SUMMARY PROSPECTUS NOVEMBER 1, 2015
Catalyst/Princeton Floating Rate Income Fund Class A: CFRAX Class C: CFRCX Class I: CFRIX SUMMARY PROSPECTUS NOVEMBER 1, 2015 Before you invest, you may want to review the Fund s complete prospectus, which
More informationReview Notes Linked to the Lesser Performing of the S&P 500 Index and the Russell 2000 Index due September 23, 2019
Registration Statement No. 333-199966; Rule 433 August 27, 2015 JPMorgan Chase & Co. Structured Investments Review Notes Linked to the Lesser Performing of the S&P 500 Index and due September 23, 2019
More informationPRIVATE ANNUITIES A VERSATILE
AMERICAN COLLEGE OF TRUST AND ESTATE COUNSEL NOVEMBER 10, 2002 PRIVATE ANNUITIES A VERSATILE ESTATE PLANNING TOOL PRESENTED BY: STEPHEN H. GARIEPY Stephen H. Gariepy Hahn Loeser + Parks, LLP 3300 BP Tower,
More informationCONVERTIBLE DEBENTURES A PRIMER
What are convertible debentures? CONVERTIBLE DEBENTURES A PRIMER They are hybrid securities, combining the features of a conventional debenture with the option of converting, under certain circumstances,
More informationTARP AIG SSFI Investment. Senior Preferred Stock and Warrant. Summary of Senior Preferred Terms. American International Group, Inc. ( AIG ).
TARP AIG SSFI Investment Senior Preferred Stock and Warrant Summary of Senior Preferred Terms Issuer: Initial Holder: Size: Security: Ranking: Term: Dividend: Redemption: Restrictions on Dividends: American
More informationInternal Revenue Service, Treasury 1.305 5
Internal Revenue Service, Treasury 1.305 5 1.305 5 Distributions on preferred stock. (a) In general. Under section 305(b)(4), a distribution by a corporation of its stock (or rights to acquire its stock)
More informationKKM ARMOR Fund Class A Shares (Symbol: RMRAX) Class I Shares (Symbol: RMRIX)
KKM ARMOR Fund Class A Shares (Symbol: RMRAX) Class I Shares (Symbol: RMRIX) KKM U.S. Equity ARMOR Fund Class A Shares (Symbol: UMRAX) Class I Shares (Symbol: UMRIX) Prospectus June 2, 2014 The U.S. Securities
More informationIntroduction to Options
Introduction to Options By: Peter Findley and Sreesha Vaman Investment Analysis Group What Is An Option? One contract is the right to buy or sell 100 shares The price of the option depends on the price
More informationCHAPTER 20. Hybrid Financing: Preferred Stock, Warrants, and Convertibles
CHAPTER 20 Hybrid Financing: Preferred Stock, Warrants, and Convertibles 1 Topics in Chapter Types of hybrid securities Preferred stock Warrants Convertibles Features and risk Cost of capital to issuers
More informationEquity Investing Evolved Manage risk, stay invested
Equity Investing Evolved Manage risk, stay invested HSBC Buffered Strategies Are you on track to meet your retirement and investment goals? Have extreme market swings prevented you from investing? Would
More informationSTATE BOARD OF REGENTS OF THE STATE OF UTAH STUDENT LOAN PURCHASE PROGRAM An Enterprise Fund of the State of Utah
An Enterprise Fund of the State of Utah Financial Statements AN ENTERPRISE FUND OF THE STATE OF UTAH FOR THE SIX MONTHS ENDED DECEMBER 31, 2011 TABLE OF CONTENTS Page MANAGEMENT S REPORT 1 FINANCIAL STATEMENTS:
More informationIASB/FASB Meeting October 2009
IASB/FASB Meeting October 2009 IASB agenda reference 9 FASB memo reference 69 Project Financial Instruments with Characteristics of Topic Classification Approach 4.1 Introduction 1. Under Approach 4, all
More informationJPMORGAN CHASE & CO FORM 424B2. (Prospectus filed pursuant to Rule 424(b)(2)) Filed 06/14/16
JPMORGAN CHASE & CO FORM 424B2 (Prospectus filed pursuant to Rule 424(b)(2)) Filed 06/14/16 Address 270 PARK AVE 38TH FL NEW YORK, NY 10017 Telephone 2122706000 CIK 0000019617 Symbol JPM Fiscal Year 12/31
More information